Olympic Steel Reports Record Third Quarter and Nine Month Net Sales

Olympic Steel Inc. (Nasdaq: ZEUS), a leading national metals service center, today announced significantly improved financial results for the third quarter and nine-month period ended Sept. 30, 2018.

Third-quarter 2018 net sales increased 38%, to $457 million, which is the highest quarterly sales posted in the Companys history. This is up from $331 million in net sales during the third quarter of 2017. Year-to-date net sales grew 26% over the prior years same period, reaching a record $1.3 billion, versus $1.0 billion in 2017. Higher year-over-year shipping volume and higher average prices drove the sales increase in both periods.

Net income rose to $11.6 million, or $1.01 per diluted share, in the third quarter, up from $2.3 million or $0.20 per diluted share, in the same quarter of 2017. This years third-quarter net income was negatively impacted by $2.7 million in LIFO expense, which reduced quarterly earnings by $0.18 per diluted share. In last years same quarter, LIFO expense reduced net income by $0.7 million, or $0.04 per diluted share. Adjusting for LIFO impacts in both periods, third-quarter net income improved to $1.19 per diluted share in 2018, up from $0.24 per diluted share in 2017. The table that follows provides a reconciliation of non-GAAP measures, to measures prepared in accordance with GAAP.

Robust demand for metals and active shipping volume continued in the third quarter, said Chairman and Chief Executive Officer Michael D. Siegal. Our diversification strategies and strong balance sheet, combined with record sales and higher margins, drove significant earnings improvement in all three of our operating segments for the third quarter and nine months of 2018.

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For the 2018 nine-month period, net income grew to $35.1 million, or $3.07 per diluted share. This more than doubled net income of $14.8 million, or $1.30 per diluted share, reported for the same period in 2017. Year-to-date LIFO expense totaled $4.7 million, or $0.30 per diluted share, in 2018, compared with $1.5 million, or $0.08 per diluted share, in the same period last year.

End-market demand is expected to remain strong in all industries that we serve, Siegal said. Our customers anticipate year-over-year growth will continue in this years final quarter, and into 2019.

The Companys Board of Directors also approved a regular quarterly cash dividend of $0.02 per share, which is payable on Dec. 17, 2018, to shareholders of record on Dec. 3, 2018.

Olympic Steel, Inc.

Reconciliation of Net Income Per Diluted Share to Adjusted Net Income Per Diluted Share

The following table reconciles adjusted net income per diluted share to the most directly comparable GAAP financial measure:

Three Months Ended

Nine Months Ended

Sept. 30,

Sept. 30,

2018

2017

2018

2017

(unaudited)

(unaudited)

Net income per diluted share (GAAP):

$

1.01

$

0.20

$

3.07

$ 1.30

Excluding the following items:

Tax adjustment on retirement plan

–

–

–

(0.17

)

LIFO expense

0.18

0.04

0.30

0.08

Adjusted net income per diluted share (non-GAAP):

$

1.19

$

0.24

$

3.37

$ 1.21

Conference Call and Webcast

A simulcast of Olympic Steels 2018 third-quarter earnings conference call can be accessed via the Investor Relations section of the Companys website at www.olysteel.com. The live simulcast will begin at 10 a.m. EST on Nov. 8, and a replay will be available for approximately 14 days thereafter.

Forward-Looking Statements

It is the Companys policy not to endorse any analysts sales or earnings estimates. Forward-looking statements in this release are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are typically identified by words or phrases such as may, will, anticipate, should, intend, expect, believe, estimate, project, plan, potential, and continue, as well as the negative of these terms or similar expressions. Such forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those implied by such statements. Readers are cautioned not to place undue reliance on these forward-looking statements. Such risks and uncertainties include, but are not limited to: the recent fluctuations in metals pricing provides risks of falling metals prices and inventory devaluation; general and global business, economic, financial and political conditions; competitive factors such as the availability, global production levels and pricing of metals, industry shipping and inventory levels and rapid fluctuations in customer demand and metals pricing; cyclicality and volatility within the metals industry; fluctuations in the value of the U.S. dollar and the related impact on foreign steel pricing, U.S. exports, and foreign imports to the United States; the levels of imported steel in the United States and the tariffs initiated by the U.S. government in 2018 under Section 232 of the Trade Expansion Act of 1962 and newly imposed tariffs and duties on exported steel, U.S. trade policy and its impact on the U.S. manufacturing industry; the availability, and increased costs, of labor related to tighter employment markets; the availability and rising costs of transportation and logistical services; rising interest rates and their impacts on our variable interest debt; the successes of our efforts and initiatives to increase sales and earnings, maintain or improve working capital turnover and free cash flows, improve our customer service, and achieve cost savings; our ability to generate free cash flow through operations and repay debt within anticipated time frames; events or circumstances that could impair or adversely impact the carrying value of any of our assets; risks and uncertainties associated with intangible assets, including impairment charges related to indefinite lived intangible assets; events or circumstances that could adversely impact the successful operation of our processing equipment and operations; the amounts, successes and our ability to continue our capital investments and strategic growth initiatives, including acquisitions and our business information system implementations; our ability to successfully integrate Berlin Metals, LLC, or Berlin Metals, into our business and risks inherent with the Berlin Metals acquisition in the achievement of expected results, including whether the acquisition will be accretive and within the expected timeframe; the success of our operational initiatives to improve our operating, cultural and management systems and reduce our costs; the ability to comply with the terms of our asset-based credit facility; the ability of our customers and third parties to honor their agreements related to derivative instruments; customer, supplier and competitor consolidation, bankruptcy or insolvency; reduced production schedules, layoffs or work stoppages by our own, our suppliers or customers personnel; the impacts of union organizing activities and the success of union contract renewals; the timing and outcomes of inventory lower of cost or market adjustments and last-in, first-out, or LIFO, income or expense; the inflation or deflation existing within the metals industry, as well as product mix and inventory levels on hand, which can impact our cost of materials sold as a result of the fluctuations in the LIFO inventory valuation; the ability of our customers (especially those that may be highly leveraged, and those with inadequate liquidity) to maintain their credit availability; the adequacy of our existing information technology and business system software, including duplication and security processes; the adequacy of our efforts to mitigate cyber security risks and threats; access to capital and global credit markets; our ability to pay regular quarterly cash dividends and the amounts and timing of any future dividends; our ability to repurchase shares of our common stock and the amounts and timing of repurchases, if any; unanticipated developments that could occur with respect to contingencies such as litigation, arbitration and environmental matters, including any developments that would require any increase in our costs for such contingencies; and changes in laws or regulations or the manner of their interpretation or enforcement could impact our financial performance and restrict our ability to operate our business or execute our strategies.

In addition to financial information prepared in accordance with GAAP, this document also contains adjusted earnings per diluted share, which is a non-GAAP financial measure. Managements view of the Companys performance includes adjusted earnings per share, and management uses this non-GAAP financial measure internally for planning and forecasting purposes and to measure the performance of the Company. We believe this non-GAAP financial measure provides useful and meaningful information to us and investors because it enhances investors understanding of the continuing operating performance of our business and facilitates the comparison of performance between past and future periods. This non-GAAP financial measure should be considered in addition to, but not as a substitute for, the information prepared in accordance with GAAP. A reconciliation of this non-GAAP measure to the most directly comparable GAAP financial measure is provided above.

About Olympic Steel

Founded in 1954, Olympic Steel is a leading U.S. metals service center focused on the direct sale and distribution of large volumes of processed carbon, coated and stainless flat-rolled sheet, coil and plate steel, aluminum, and tin products. The Companys CTI subsidiary is a leading distributor of steel tubing, bar, pipe, valves and fittings, and fabricates pressure parts for the electric utility industry. Headquartered in Cleveland, Ohio, Olympic Steel operates from 31 facilities in North America.

Inventories, net (includes LIFO debit of $662 as of Sept. 30, 2018 and $5,337 as of Dec. 31, 2017)

366,198

275,307

Prepaid expenses and other

5,219

8,333

Assets held for sale

–

750

Total current assets

589,106

420,136

Property and equipment, at cost

398,524

376,710

Accumulated depreciation

(239,862

)

(229,062

)

Net property and equipment

158,662

147,648

Intangible assets, net

27,519

22,980

Other long-term assets

13,980

13,394

Total assets

$

789,267

$

604,158

Liabilities

Current portion of long-term debt

$

–

$

930

Accounts payable

118,134

84,034

Accrued payroll

19,265

11,999

Other accrued liabilities

11,595

14,184

Total current liabilities

148,994

111,147

Credit facility revolver

304,484

196,235

Other long-term liabilities

12,724

12,048

Deferred income taxes

14,718

12,145

Total liabilities

480,920

331,575

Shareholders’ Equity

Preferred stock

–

–

Common stock

130,597

129,453

Treasury stock

(132

)

(337

)

Retained earnings

177,882

143,467

Total shareholders’ equity

308,347

272,583

Total liabilities and shareholders’ equity

$

789,267

$

604,158

Olympic Steel, Inc.

Segment Financial Information

(In thousands, except tonnage and per-ton data. Figures may not foot to consolidated totals due to Corporate expenses.)

Three Months Ended Sept. 30:

(unaudited)

Carbon Flat

Specialty Metals Flat

Tubular and Pipe

Products

Products

Products1

2018

2017

2018

2017

2018

2017

Tons Sold1

281,225

277,426

36,606

23,253

NA

NA

Net Sales

$

282,810

$

215,843

$

92,153

$

57,554

$

82,013

$

58,045

Average selling price per ton

1,006

778

2,517

2,475

NA

NA

Cost of materials sold2

225,407

173,560

77,928

50,083

62,027

41,708

Gross profit3

57,403

42,283

14,225

7,471

19,986

16,337

Operating expenses4

42,910

38,585

9,271

5,397

16,884

14,729

Operating income

$

14,493

$

3,698

$

4,954

$

2,074

$

3,102

$

1,608

Depreciation and Amortization

2,524

2,493

341

185

1,311

1,403

Nine Months Ended Sept. 30:

(unaudited)

Carbon Flat

Specialty Metals Flat

Tubular and Pipe

Products

Products

Products1

2018

2017

2018

2017

2018

2017

Tons Sold1

883,190

889,676

100,275

68,985

NA

NA

Net Sales

$

802,995

$

669,817

$

255,037

$

173,789

$

227,459

$

178,924

Average selling price per ton

909

753

2,543

2,519

NA

NA

Cost of materials sold2

632,326

532,383

216,726

148,413

167,148

126,050

Gross profit3

170,669

137,434

38,311

25,376

60,311

52,874

Operating expenses4

129,768

119,122

24,818

16,458

48,394

46,435

Operating income

$

40,901

$

18,312

$

13,493

$

8,918

$

11,917

$

6,439

Depreciation and Amortization

7,665

8,287

880

609

4,237

4,211

1

Tonnage is less meaningful for the Tubular and Pipe Products segment and therefore, is not reported.

2

Includes LIFO expense for the Tubular and Pipe Products segment of $2.7 million, and $4.7 million, for the three and nine months ended Sep. 30, 2018; and $0.7 million, and $1.5 million for the three and nine months ended Sept. 30, 2017.

3

Gross profit is calculated as net sales less the cost of materials sold.

4

Operating expenses are calculated as total costs and expenses less the cost of materials sold.